Visions of India

India is teeming with the unemployed, crumbling infrastructure, corrupt government officials and tracts of undeveloped land. The much anticipated industrialisation of India could be just a mirage.

I have been in India for three days, so naturally I am now an expert. Actually reverse that: I have read a lot about this country and used to think I knew a fair bit about it. Now I realise I know nothing.

The place is quite shocking. The chaos, the anarchy on the roads, and above all the mess. There is no maintenance. All the buildings in Chennai except the Hindu temple are shockingly rundown; city roads are like country lanes; road barriers are corrugated iron; everywhere there are freeways and overpasses apparently permanently half-built.

And there are people out everywhere, all the time, walking about, riding bicycles, driving – but not working. Those who are working seem mostly idle, waiting for customers who never come. Unemployment must be colossal, no matter what the official figures say.

But the physical mess is merely a symptom of a deep governance malaise, which actually has enormous implications for the world.

This may be a superficial three-day view, but it is supported by a number of people I have spoken to: any global climate change strategy that relies on India introducing and then following a set of difficult carbon emission protocols is doomed.

This place can’t fix its roads, or grow enough food to feed itself, let alone engage in a complex and painful process of greenhouse gas reduction.

More broadly, from reading newspapers and listening to people, I think it’s fair to say that the classic conditions exist in which the revolutions of the past took place: high and hidden unemployment, dysfunctional governance, poor infrastructure, rampant corruption and massively unequal distribution of wealth.

Indeed, several states are already run by Communist governments and Maoism is taking hold in the countryside. Terrorism from left-wing extremists is a constant problem.

And there is no sign whatsoever of any project among the political or bureaucratic elites to deal with the underlying causes of India’s problems. It seems to be entirely beyond them.

I am in Chennai for a conference jointly organised by the Australian High Commission and The Hindu newspaper. The overall theme of the conference is: "Sustaining Asia’s Growth: Challenges & Opportunities.”

There has been a lot of the usual talk about the Asian century and the growth of "Chindia” and more than a little quiet glee about the problems besetting the US financial system, along the lines I wrote about from Singapore on the way here (Asia returns the favour, September 17).

But by the far the most interesting session was on the Thursday, entitled "The Food Debate”, and in particular a discussion about India’s food problems led by G Chandrashekhar, associate editor of the Hindu Business Line, and Jayanta Roy Chowdhury, business editor of The Telegraph.

Immediately before that there had been an utterly extraordinary presentation about India’s mineral sector from Linus Lobo, from Mjunction Services Ltd, a marketing services joint venture between Steel Authority of India and Tata Steel (although he says the views expressed were his own, not those of Mjunction).

It became clear as these three prominent and well-informed men spoke, that India is almost totally dysfunctional.

Its history, culture, constitution, political system, and the sheer size of its population are such powerful blocks against any kind of progress or development that the country simply does not work properly. And the people are getting very unhappy about this.

The session went more than an hour over time as increasingly passionate and upset members of the audience questioned the speakers about why India was so dysfunctional – why nothing gets done.

Linus Lobo opened his talk by saying that India has enough coal and other minerals for its own needs, but not only cannot mine enough for itself, it can’t even import enough for its needs because the ports are clogged and there are no railways to transport it to power stations.

He said the only projects that get undertaken in India are brownfields. There are no greenfields projects … at all.

He explained, by the way, why the buildings are all so rundown: because tenants outnumber owners and therefore have more political power, so the laws protect tenants and they can’t be removed. Landlords have no incentive to fix the houses.

The problem with developing India’s minerals wealth is similar to some of the difficulties in outback Australia – but times 100.

India also has an indigenous population and they are also the poorest people in the land. According to Linus Lobo they are malnourished, oppressed, but very aware of the wealth they are sitting on.

In the mineral rich districts the indigenous Indians don’t count in what are commonly called "vote banks” in the cities – groups of people whose votes are collected and sold to the highest bidder. They are therefore disempowered and disgruntled (at least the members of the city vote banks get to sell their votes).

As Linus said: "you can grant a company a mining concession, but then someone has to actually go there and develop it. That is usually impossible.”

Linus actually lost the audience somewhat when he said that China solved a lot of these problems between 1950 and 1977 during and after Mao Tse Tung’s Great Leap Forward. The fact that the problems were solved by murdering millions of people caused some muttering and shifting in the seats.

In question time I asked Linus whether he was actually suggesting a Maoist revolution would be a good idea for India.

His reply? "No, I’m advocating proper social democracy. But the Maoist revolution is already happening in rural areas.” Gulp.

Similar themes emerged in the discussion about food.

The problem is that per capita food production in India is declining. Although manufacturing and services industries are growing strongly, agriculture is stagnant.

China has less arable land than India but produces three times as much food.

Although 600 million people depend on the land for their livelihoods, only 120 million are gainfully employed. According to Mr Chandrashekhar, 80 per cent of the rural population are actually unemployed – they are on farms, but not doing anything.

Eighty per cent of farmers own less than two acres of land, which means there is absolutely no capital intensive farming.

What’s more property rights and land tenure are not clear, so 80 per cent of all legal cases in India are land disputes.

Investment in rural infrastructure is declining. The roads are largely impassable and supply chain infrastructure such as warehouses and silos are almost non-existent. The government is trying to get foreign direct investment into agriculture, but no companies are interested.

Rice production in India in 2007 was 93.3 million tonnes – exactly the same as in 2002. The population, meanwhile, has increased 10 per cent. All those at the conference agreed that India would soon be importing rice.

This despite the fact that the country gets 270 days of sunshine a year, has plenty of water, plenty of arable land and plenty of farm labour.

It is an unbelievable disgrace that this nation is not self-sufficient in food and that vast numbers of its people are malnourished.

Part of the problem lies in the Indian Constitution, which gives the states responsibility for agriculture. They are all broke – deep in debt. All the money that is not siphoned off by corrupt officials goes to paying interest.

The message from this conference, and from my own brief observations, is that the India is many ways a wonderful country with the most charming people on earth, but its industrialisation is superficial, largely illusory and fragile. It cannot be relied upon to persist.

On the other hand, India is also clearly brimming with talent. The young MBAs and other students at this conference clearly hold the key to the country’s future. If it was just up to them, that future would be optimistic.

Follow @AlanKohler on Twitter

InvestSMART FORUM: Come and meet the team

We're loading up the van and going on tour from April to June, with events on the NSW central & north coast, the QLD mid-north coast and in Perth, Adelaide, Melbourne, Sydney and Canberra. Come and meet the team and take home simple strategies that you can use to build an investment portfolio to weather any storm. Book your spot here.

Want access to our latest research and new buy ideas?

Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.

Sign up for free

Related Articles